1. Overview of Various Approaches of Services Liberalization Training Workshop on Trade in Services Negotiations for AU-CFTA Negotiators Dr. Sherry Stephenson 24-28 AUGUST 2015 Nairobi, Kenya

2. Outline Introduction: FORMS vs. SUBSTANCE Scheduling Techniques: Positive List, Negative List and Hybrid Approach Structure of Negative List Agreements Additional and Emerging Disciplines often included or proposed for Negative List Services Agreements

3. Services Agreements demonstrate a wide variety and diversity: no two agreements are identical FORM vs. SUBSTANCE

4. Approaches to Services Agreements must distinguish between FORM and SUBSTANCE! It is not the form or the scheduling technique that determines the quality of the services agreement, but the disciplines that are associated with it. 1.Form: technique used for scheduling liberalization or market access commitments 2.Substance: disciplines associated with the scheduling technique

5. QUALITY of a Services Agreement depends upon a number of things Coverage (sectors; modes of supply) Transparency obligations National treatment obligation Scheduling at level of status quo Future liberalization commitments Breadth and depth of other included disciplines Rule of origin criteria / denial of benefits Regulatory annexes NONE OF THE ABOVE REFERS TO THE FORM or SCHEDULING TECHNIQUE (i.e. POSITIVE / NEGATIVE / HYBRID LIST), EACH OF WHICH CAN BE ASSOCIATED WITH WEAKER OR STRONGER DISCIPLINES

6. What does differ between Services RTAs is the ARCHITECTURE or STRUCTURE of the Agreement What is meant by “STRUCTURE”? The way that services is dealt with in various chapters in the RTA The relationship between services and investment and services and other areas The structure may influence the quality of the agreement as well, since it can either help or impede the use of the RTA by service suppliers. Ideally the structure should reflect the way in which services are produced and traded in real world.

7. Approaches to Trade Liberalization in Services Agreements SCHEDULING TECHNIQUES: Positive List – Negative List – Hybrid Approach

8. Types of Scheduling Techniques POSITIVE LIST: Largely based on WTO GATS; has been the traditional approach for most developing countries. NEGATIVE LIST: Largely based on NAFTA; increasingly adopted since 2000 and becoming standard practice for the majority of RTAs. HYBRID APPROACHES: Variations on either approach; being followed in the TISA negotiations.

9. 1. Positive List: GATS Approach Bottom up: Sectors are listed by choice/ or in a positive way  Commitments do not apply unless the sector and/or specific sub-sector is inscribed in the schedule. The way the commitment is expressed in both the MA and NT columns is generally negative  Setting out the limitation that is inconsistent with the agreement All limitations to MA & NT must be listed unless: –A full commitment to maintain no restrictions / limitations - ‘NONE’ –No commitment at all / complete regulatory freedom - ‘UNBOUND’ However, Mode 4 is by convention expressed in a positive way because of extenuating sensitivities. Thus, areas of liberalising commitments are identified in the schedule, in the horizontal section and sector-specific.

10. Positive List Scheduling Approach Sector specific commitments –Sector/sub-sector (using WTO/ CPC code) –4 modes of service supply Market Access Limitations (GATS Art XVI:1) –Six exhaustive limitations must be inscribed if partial commitments made (GATS Art XVI:2) –Covers both discriminatory and non-discriminatory measures National Treatment Limitations (GATS Art XVII:1) –Covers de jure & de facto discrimination –Includes any measure that modifies competition against imports / foreign suppliers

11. GATS Art XVI:2 Requirements Measures that restrict or require specific types of legal entity or joint venture through which a service may be provided. Limits on the number of service suppliers (e.g. numerical quotas, monopolies, exclusive service suppliers) Limits on the participation of foreign capital in terms of a maximum % for foreign shareholding or total value of individual or aggregate foreign investment Limits on number of service operations or on total quantity of service output Limits on total value of services transactions or assets (eg. numerical quotas or ENT requirements) Market Access Restrictions! Sector specific ENTs or limits on the number of persons to be employed

12. GATS Services Schedules must be read in comprehensively Horizontal Limitations Sector Specific Commitments –Limitations on Market Access and Limitations on National Treatment –When there is limitation under both, listed under MA column or repeated in both. –Additional Commitments  Voluntary. Measures other than those subject to Articles XVI and XVII. Eg. qualifications, standards and licensing matters. This column is to be used to indicate positive undertakings, not additional limitations or restrictions. Lists of Article II (MFN) Exemptions

13. List of Article II (MFN) Exemptions To ensure a complete and precise listing of a country's MFN exemptions, each country is required to provide five types of information for each exemption: Description of the sector or sectors in which the exemption applies; Description of the measure, indicating why it is inconsistent with Article II; The country or countries to which the measure applies; The intended duration of the exemption; The conditions creating the need for the exemption.

14. Example: Horizontal Commitments - GATS Complete Schedule at http://www.esf.be/pdfs/GATS%20UR%20Commitments/Kenya%20UR%20SoC%2047.pdfhttp://www.esf.be/pdfs/GATS%20UR%20Commitments/Kenya%20UR%20SoC%2047.pdf

15. Example: Sector Specific Commitments - GATS

17. Example: List of Article II (MFN) Exemptions - GATS

18. 2. Negative List Approach Presumption  everything liberalized unless otherwise specified. Annexes of non-conforming measures provide flexibility to the comprehensive coverage assumed Annex I  Stand-still schedule. Existing measures included at the level of regulatory application; commitment to make the sector no more restrictive in the future. Annex II  Measures (sectors) permanently excluded from the agreement; government retains full regulatory freedom.

19. Annex I: Non Conforming Measures Existing measures which do not conform with the principles set out in the text of the agreement can be retained or “grandfathered” by listing in Annex 1. In a Federal system, it is typical to “grandfather” all existing measures at State and local level (such as U.S. and Canada) No new measures which are inconsistent with the text of the agreement can be introduced after finalizing the agreement  a complete services “STANDSTILL” Annex I  Measures must be based in existing legislation. If restrictions (discriminatory treatment) are not listed in Annex 1, they must be liberalized.

20. Example: Annex I Morocco Schedule, Morocco-US FTA

24. Example: Annex I EU Schedule, CETA

25. Example: Annex I Canada Schedule, CETA

27. Annex II: Non-Conforming Measures List of measures with respect to which governments wish to retain flexibility and “policy space”: known as future measures. For these measures there is no “standstill” obligation: the level of protection can be increased in the future; like an “escape valve”. These measures usually involve the most domestically sensitive policy areas. There will always be negotiating pressure to keep this list short.

28. Example: Annex II Morocco Schedule, Morocco-US FTA

31. Example: Annex II EU Schedule, CETA

32. Example: Annex II – EU Schedule – Particular EU Members, CETA

33. Example: Annex II Canada Schedule – Alberta, CETA

34. Example: Annex II Canada Schedule – British Columbia, CETA

35. Role of Annex I and II in the Negative List Approach Difference between the Annexes relates to the difference between existing and future measures. Existing measures that do not comply with disciplines of the services agreement must be listed in Annex I and cannot be made more restrictive. To maintain the freedom to introduce new measures into a sector, they must be listed in Annex II. Either way - List it or Lose it

36. Treatment of New Services in the Negative List Approach The default position in negative list agreements is to automatically grant “new services” both MFN and NT. The right to regulate new services is guaranteed, but not right to regulate them in a discriminatory manner. However, a broad exclusion on new services can be taken out. Example: Annex on “Reservations for Future Measures” from Japan’s schedule in Mexico-Japan EPA - 2005 Japan reserves the right to adopt or maintain any measure relating to new services other than those recognized or that should have been recognized owing to the then circumstances at the time of entry into force of the Agreement. From Annex 7 on Future Measures – ALL SECTORS: NEW SERVICES.

37. 3. Hybrid Approach: Examples Philippines-Japan Economic Partnership Agreement: Standstill on existing non-confirming measures for scheduled sectors KORUS Financial Services Annex uses positive list for Mode 1 and negative list for Commercial Presence India WTO proposal (during Doha Round) to use negative list for Modes 1/2, positive list for Modes 3/4 International Services Agreement’s (TISA) positive list for Market Access; negative list for National Treatment

38. TISA: Hybrid Approach GATS positive list scheduling for MA but Negative List scheduling for NT NT obligation applies to all sectors and sub-sectors, whether or not a MA commitment is undertaken NT obligations must also be taken out at level of regulatory application –Objective of the TiSA participants is to reach an agreement that will go beyond the GATS but also be compatible with the GATS structure, so as to eventually be incorporated into the WTO – or applied on an MFN basis How would this happen? It would depend highly on reaching a “critical mass”

39. Summary of Scheduling Approaches to Services Trade Agreements POSITIVE LISTNEGATIVE LISTHYBRID APPROACH Market Access Voluntary sectoral coverage Comprehensive sectoral coverage Voluntary sectoral coverage Binding restriction / limitation at level of choice No restrictions unless indicated in non-conforming measures Binding at level of applied laws for limitations in schedules for those included sectors Binding of restrictions at level of applied laws National Treatment Voluntary sectoral coverage Binding restriction / limitation at level of choice Non discriminatory treatment obligation unless otherwise specified in exceptions (bound at applied level) Mandatory inclusion of all service sectors within national treatment obligation Limitations to national treatment bound at applied level Negative List  MOST COMPREHENSIVE COVERAGE

40. Some Differences between Positive and Negative List Scheduling technique difference; not necessarily (although often the case) relating to core or substantive provisions Negative list approach reverses the presumption of the positive list  From bottom up to top down. –Positive list approach as usually practiced is very flexible; governments only need to make commitments on what they wish and at the level of restriction they wish – leaves more “policy space” than the negative list approach –However… is this flexibility always a good thing?

41. Advantages of the Negative List Approach Locks in the current level of regulations  no ‘water’ in the schedules as is case with GATS at present); reflects actual reality Consolidates the status quo, offering signals for foreign investors that can encourage more FDI  ensures stability and predictability More transparent  shows clearly the non-conforming regulations and where discrimination is practiced Entering into a negative list services agreement serves as a review and audit of national regulations. Requires inter-Ministerial cooperation within national governments

42. Structure of Negative List Services Agreements SERVICES – INVESTMENT

43. Typical Structure of Negative List Services Agreements Negative List Agreements contain all chapters within one single legal text, including services and investment Annexes of Lists of Non-conforming Measures, or exceptions to the core disciplines are attached to the Agreement Goods and services are both covered by the disciplines of several of the chapters in the Agreement, including: –Investment –Competition Policy –Government Procurement –Electronic Commerce –Transparency

44. Negative List Agreement Structure/ Content of a typical FTA: Example of SINGAPORE – PERU (2008) – Services are spread throughout the FTA General Definitions Trade in Goods (Tariff Schedules) Special Agriculture Measure Rules of Origin (Specific Rules of Origin) Customs Sanitary and Phytosanitary Measures Technical Barriers to Trade Bilateral Safeguards Government Procurement Investment Cross-Border Trade in Services (with Annexes for Existing & Future Measures) Temporary Entry of Business Persons (sometimes with Annex) Electronic Commerce Competition Policy Transparency Administration of the Agreement Dispute Settlement Exceptions Final Provisions

45. Structure of typical “negative list” type of FTAs for treatment of Services / Investment Chapter on Cross-Border Services (Modes 1 & 2) Chapter on Tele- Communications Disciplines applying only to this sectors Chapter on Investment (applying to Goods & Services) (Mode 3) Chapter on Temporary Entry of Business Persons (Mode 4) Chapter on Financial Services Disciplines applying only to this sector List of Non-conforming Measures in Annexes (similar to Lists of Commitments but set out differently) Annex on Professional Services

46. Relationship between Services and Investment in a Negative List Agreement SERVICES: Modes 1 and 2: Covered in Cross-border Chapter Mode 4: Covered in Chapter on Temporary Entry of Business Persons INVESTMENT / SERVICES AND GOODS TAKEN TOGETHER: Mode 3: Included in Investment Chapter that covers both Goods and Services and IP All disciplines in the Investment Chapter apply across the board to all service sectors whether or not they are scheduled

47. Content of Investment Chapter in a Negative List Agreement Includes Investment Liberalization/ Disciplines, Investor Protection, Investment Promotion Broad definition of Investment: FDI plus Portfolio (stocks and bonds) plus IP/ land associated with the Investment Investment Liberalization: All FDI allowed, unless otherwise specified –NOTE: Similar content of Investment Chapter in negative list RTAs to that of a Stand-alone Bilateral Investment Treaty (BIT)

48. Content of Investment Chapter in a Negative List Agreement Core Liberalization Investment Disciplines: MA; NT; No Performance Requirements; Allowance for Senior Management (latter two specific to investment) Core Investment Protection Disciplines: Full and Equitable Treatment; Expropriation/ Compensation Any Exceptions to Investment Disciplines (discriminatory treatment) must be put in Annexes Investor-State Dispute Settlement (often, not always included; has become very controversial in recent period)

49. Putting together a typical Negative List FTA chapter on Investment Typically, the Investment Chapter covers investment in both goods & services sectors and aims to bring together into one chapter –Key elements of usually pre-existing Bilateral Investment Protection and Promotion Agreements –Reaffirmation of various relevant WTO disciplines (eg TRIPS) –More liberal conditions for market entry –Extension of National Treatment post-establishment –Commitment to a “minimum standard of treatment” The NAFTA approach is gaining in ascendency Eg. ANZ-ASEAN FTA

50. Defining Investment: Very Broad Includes every asset that an investor owns or controls, directly or indirectly, involving e.g. the commitment of capital or other resources, the expectation of gain or profit or the assumption of risk FDI (involving direct participation by the investor in the management of the investment) Portfolio Investment (minority holding of shares, bonds or other securities)

51. Elements of the Treatment of Investors and their Investments Pre-Establishment Disciplines Post-Establishment Disciplines Non Discrimination –National Treatment –Most-Favoured-Nation Treatment Minimum Standard of Treatment Performance Requirements Transfers and Payments Expropriation & Compensation Senior Personnel

52. Scheduling Non-conforming Investment Measures Investment Regime must be specified in the Negative List Approach in the Annexes if it contains reserved sectors or discriminatory elements with regard to: –Foreign investment approval mechanisms –Land purchases –Foreign exchange regulations –Sectors with specific limitations on investment must be included in the Schedules of Non-conforming Measures (for all restrictions not conforming to key liberalization disciplines) in Annex I Sectoral Schedules of Reserved Sectors (Annex II) The Negative List Approach combines both Services and Investment in the Non-conforming Measures

53. Annexes to Negative List Agreements

54. ANNEXES / separate CHAPTERS are often included in Negative List Agreements Many FTAs include specific sector Annexes to either the Cross-Border Services chapter or to the Agreement as a whole. Why? To allow for more detailed treatment of a specific sector Some of these Annexes contain only regulatory disciplines (i.e. Telecommunications); others contain regulatory disciplines plus Market Access obligations (i.e. Financial Services); others may or may not contain both, depending upon the Agreement in question (i.e. Movement of Natural Persons)

55. 1. Annex on PROFESSIONAL SERVICES There is usually an Annex on Professional Services attached to the Chapter on Cross-Border Trade in Services Why? To facilitate movement of professional service providers To provide for regulatory cooperation for MRAs and to work toward recognition of qualifications and equivalences

56. 2. Chapter on FINANCIAL SERVICES In Positive List Agreements usually an Annex; in Negative List Agreements usually a separate Chapter Content-wise: Both tend to follow GATS commitments and the Understanding on Financial Services in particular In Negative List Agreements the Financial Services chapter is self-contained; also has MA, NT obligations and even dispute settlement There is also usually a separate Annex to schedule Non-conforming Measures on Financial Services

57. 3. Chapter on TELECOMMUNICATIONS WTO Reference Paper on Telecommunications –Contains basic pro-competitive disciplines to keep telecom suppliers from abusing potential monopoly positions More recent FTAs and especially Negative List Agreements contain a stronger version of the WTO Reference Paper as a separate chapter with updated disciplines for Telecommunications Chapter contains no market access obligations, only regulatory disciplines. E.g. ASEAN + 1: Australia / New Zealand

58. 4. Chapter on MOVEMENT OF BUSINESS PERSONS In Negative List Agreements this chapter is usually focused on business personnel and skilled labour categories Chapter sometimes includes MA commitments; other times focuses only on facilitating procedures and administrative practices Traditional categories have included: senior personnel and management; specialists; investors; and traders –New categories are being included in more recent Negative List FTAs of interest to developing countries, including: Installers and repair personnel; graduate trainees; independent service specialists (ISS) –New occupations sometimes specified: technicians, chefs, yoga teachers, music and dance teachers, English teachers

59. Additional and Emerging Disciplines often included or proposed for Negative List Services Agreements

60. Competition Policy Negative List Agreements usually contain obligations on monopolies, exclusive service suppliers and business practices Applies to any sector with either a monopoly or oligopoly (for latter, it applies where through licensing etc., the government either limits the number of suppliers or restricts their ability to compete) Obligation: Government must ensure that such entities do not act inconsistently with competitive obligations The scope of the obligation on business practices applies to all companies but obligation is weaker- only to consult on any anti-competitive behaviour

61. Government Procurement Often a separate Chapter in Negative List Agreements Plurilateral Government Procurement Agreement at the WTO - benchmark for RTAs New GPA is a more balanced text by leaving open the possibility for developing countries to have: –Price preference schemes –Offsets (eg. licensing, investment, domestic content requirements) –Phase-in of sectors or companies to be covered –Higher procurement thresholds

62. Emerging Issues - Increasing Participation of SMEs SME-specific articles have not been a feature of trade agreements to date The TPP has a chapter on SMEs Stated goal is to provide greater levels of facilitation and market access for SMEs

63. Emerging Issues - Cross-Border Data Flows New FTAs (like TPP, TTIP) may include provisions to prevent restrictions on data transfers and data localization requirements Restrictions being put in place often based on either (1) data privacy or (2) domestic sector development reasons: these must be balanced against trade liberalization objectives What happens when there is a natural disaster that affects area with data centres? How do you balance policy objectives above with need for financial firm cost control & risk mitigation?

64. Thank You Sherry stephenson sherry.stephenson@gmail.com